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  • THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY

    USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT

    POLICY

    Date:

    GAIN Report Number:

    Approved By:

    Prepared By:

    Report Highlights:

    The Philippines is a regional pioneer in renewable energy (RE) and has biofuels legislation in place that

    calls for the blending of ethanol and biodiesel in gasoline and diesel fuel. RE sources accounted for 43

    percent of the countrys primary energy mix in 2009. However, its contribution to total power supply is

    likely to decline in the next five years due to its comparatively higher cost and the preference of local

    officials to turn to familiar sources of power to address rapidly growing demand. Feedstock suppliers

    have had no difficulty in complying with the mandated two percent biodiesel blend due to the

    abundance of coconut oil in the country. Industry sources are confident they could even meet blends of

    up to a five percent. Compliance with the mandated ethanol blend using locally produced ethanol,

    however, will continue to be problematic mainly due to a lack of investment, distribution infrastructure

    Perfecto G. Corpuz

    William Verzani

    Philippine Biofuels Industry Situation and Outlook

    Biofuels Annual

    Philippines

    8/15/2011

    Required Report - public distribution

  • and uncertainty over policy considerations. As a result, ethanol imports are expected to increase

    through at least 2012, in order to satisfy local ethanol-blended gasoline requirements.

  • Post:

    Executive Summary:

    When Republic Act 9513 (RA 9513) or the Renewable Energy Act was signed in 2008, the country was

    the second largest producer of geothermal energy (next to the U.S.) and had established the first

    commercial wind farm in Southeast Asia. It had likewise set up the first grid-connected solar

    photovoltaic power plant in the region. In 2009, renewable energy (RE) sources (geothermal, biomass,

    hydro, wind and solar) accounted for 43 percent of the Philippine primary energy mix.

    The country has experienced continued positive economic growth in recent years. However, a highly

    skewed income distribution pattern has meant most of the benefits of this growth have not trickled down

    to the masses. Increasing fuel and food prices have negatively affected the growing number of poor

    Filipino families. The increased demand for electricity by the growing dichotomous Philippine

    economy and frequent power outages are forcing the Philippine Government (GPH) to shift priority

    from sophisticated RE-power facilities to more traditional power plants such as those that run on coal.

    The anticipated issuance of less than expected feed-in-tariffs (FITs) and RE installation targets before

    the end of 2011 support this perceived shift. As a result, the contribution of RE power sources to the

    countrys primary energy mix is expected to decline in the next five years.

    Even before RA 9513, the country had biofuels legislation in place when Republic Act 9367 (RA 9367)

    or the Biofuels Act was signed in January 2007. RA 9367 mandated the blending of biodiesel and

    ethanol in all locally distributed diesel and gasoline. Since the 2007 legislation, compliance with the

    mandated biofuels blends has been mixed.

    RA 9367 mandated the use of a minimum one percent biodiesel blend in all diesel fuels by February

    2007, to increase to a two percent blend by February 2009. There have been no major issues in local

    biodiesel production and compliance, and the domestic coconut industry has expressed optimism it can

    supply the feedstock requirements should a higher biodiesel blend be enforced. Coconut methyl ester

    (CME) is the Philippine biodiesel feedstock of choice, and is derived from coconut oil (CNO).

    Research and development efforts in the use of Jatropha curcas (jatropha) is being pursued as an

    advanced biodiesel feedstock although a national standard for biodiesel has not yet been established.

    RA 9367 also mandated that by February 2009, at least five percent ethanol shall comprise the annual

    total volume of gasoline sold and distributed by oil companies in the country, increasing to a ten percent

    blend by February 2011. Although the amount of ethanol used in gasoline increased since the

    legislation took effect, the percentage blend has been consistently below the mandated requirement.

    According to industry players, non-compliance is due to insufficient investment due to low consumer

    awareness, inadequate logistical and distribution systems, and a lack of clarity in the overall policy

    implementation plan. Additionally, delays in the issuance of updated most favored nation (MFN) tariffs

    on goods (including biofuels) have added uncertainty for potential fuel ethanol investors.

    Due to problems in meeting the mandated ethanol blend, implementation of the 10 percent blend

    requirement by February, 2011 was suspended by the Philippine Department of Energy (DOE). Local

    Manila

  • ethanol producers and oil companies were granted a six month extension to August 2011 for them to

    attend to logistical and infrastructure concerns. In the same DOE directive, local oil companies are

    allowed to import ethanol to cover shortfalls in local production through August 2015. Sugarcane is

    the preferred feedstock used by the Philippine bioethanol industry while cassava and sweet sorghum are

    alternative feedstocks currently under study.

    To summarize, there are no expected Philippine biodiesel issues and compliance with the mandated

    blend is expected. For ethanol, however, compliance using locally produced ethanol will continue to be

    problematic, and more imports will be needed to comply with the mandated blend.

    Author Defined:

    POLICY AND PROGRAMS

    Overview

    This report is based on the Philippine Energy Plan (PEP) 2007-2014 prepared by the countrys DOE.

    The proposed PEP 2009-2030 mentioned in the previous annual report is undergoing further

    refinements and has not been approved.

    In 2009, the countrys total energy mix according to the September 2010 update of the Philippine

    Biofuels Program (most recent available), reached 40.4 MTOE. Based on the same update, the

    Philippines was 59 percent energy self-sufficient in 2009, and RE sources (geothermal, biomass, hydro,

    wind and solar) accounted for 43 percent of the countrys energy mix.

    The percentage contribution of the 2009 energy sources follow:

    PHILIPPINE PRIMARY ENERGY MIX - 2009 Percent (%) Oil 32 Geothermal 23 Coal 17 Biomass 14 Natural Gas 8 Hydro 6 Wind & Solar 0

    TOTAL 100

    Source: Philippine Biofuels Program, September 2010

    The Philippines has one of the highest, if not the highest, power rates in Asia, and because of the

    increasing number of poor Filipinos, the Philippine government (GPH) has been quite sensitive to

    increasing fuel prices.

    Since 2001, poor households have been beneficiaries of a lifeline subsidy or discounts from large

    power producers under the Electric Power Industry Reform Act of 2001 or Republic Act No. 9136. The

  • EPIRA provides households that consume less than 20 kilowatt-hours (KWh) a month a 100 percent

    discount, 50 percent for those using 21-50 KWh, 35 percent for those using 51-70 KWh, and 20 percent

    for those consuming 71-100 KWh. The subsidy was set to expire on June 26, 2011 but was extended

    for another 10 years by the Philippine Congress in early June 2011.

    Renewable Energy

    On December 16, 2008, then President Gloria Macapagal-Arroyo signed RA 9513 or the Renewable

    Energy Act of 2008. RA 9513 had as its declared policies the following:

    Accelerate the exploration and development of RE resources to achieve energy self-reliance,

    through the adoption of sustainable energy development strategies to reduce the country's

    dependence on fossil fuels; Increase the utilization of RE and promote its commercial application by providing fiscal and

    non-fiscal incentives; Encourage the development and utilization of renewable energy resources as tools to effectively

    prevent or reduce harmful emissions and thereby balance the goals of economic growth and

    development with the protection of health and the environment; and Establish the necessary infrastructure and mechanism to carry out the mandates specified in this

    Act and other existing laws.

    When RA 9513 was signed, the Philippines was the second largest producer of geothermal energy (next

    to the U.S.) and had established the first commercial-size wind farm in Southeast Asia. It likewise had

    set up the first and largest grid-connected solar photovoltaic power plant in the region. According to

    press reports, the DOE had already awarded P88 billion ($2 billion) worth of RE projects since the

    signing of RA 9513 and hopes to generate an additional $9-10 billion worth of investments through

    2020. Section seven (7) of RA 9513 provides for FITs to be paid by consumers as compensation for RE

    developers that generate and infuse power into the local transmission system. Per RA 9513, the

    propos

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